Analysis of PR’s performance in 2016 & forecast for 2017 – 2019
Today, after 11 years of economic recession, external and internal events pose further challenges to the Puerto Rico economy. China’s deceleration, the exit of UK from the European Community, Trumps’ election in the US, and terrorist attacks in 2016 do not augur strong external demand for PR’s exports in coming years. The establishment of the Financial Oversight and Management Board (FOMB), a euphemism for a control board, in PR was the most important event in 2016, together with the election of Governor Rossello. In a time of uncertainty, peering 3 years into the future may seem a daunting task. It is, but, ignoring trends—demographic, economic, corporate—is not an option. Understanding the immediate future in PR is vital in ensuring that business and hopefully, government strategies are sustainable, that opportunities are identified, and that challenges are addressed to exit stagnation. This Pulse explores recent economic events in 2016 and forecasts 2017 thru 2019.

What can happen when austerity is the only remedy in place
The Greek economic crisis, just like PR’s, was a long time in the making. What began as a credit crisis in 2008 became a social and economic chaos in two years, with austerity measures fueling a negative feedback loop that is still ongoing. The crisis was amplified by prior conditions on the ground, such as, widespread tax evasion, tampering of official statistics, and relentless political pressure from all sides. By 2014, the economic consequences of the process were becoming irreversible with widespread questioning of the need for austerity measures. Since then, many lessons have been drawn, most importantly, that the need for austerity must not override the need for future growth and development. Otherwise, the fiscal policy risks becoming self-defeating as fiscal accounts may never regain sustainability. Puerto Rico must do everything to avoid this trap.

This edition of Puerto Rico Economic Compass, analyzes the 4Q-2016 economic indices and includes an industry analysis of the PR economy plus economic policies proposed by the new Administration. The elected governor, Ricardo Roselló and the PROMESA Fiscal Oversight Board have certainly altered expectations for 2017. New executive orders, approval of sweeping labor legislation, and continued dialogue with the PROMESA Board regarding key recommendations to be implemented in the near term, have raised both praise and criticism by several industry sectors. For instance, the recently approved Labor Reform Act has been praised and promoted by several industry and retail employers but has met a backlash from many in the labor movement. No doubt, the new government has been very busy trying to adopt and implement the fiscal and economic plan demanded by the PROMESA board since last December. What’s the rest of the story?

The challenges of health and PROMESA for Puerto Rico
A new year has arrived and brought with it a series of complex issues that require immediate attention. The US Congress mandated fiscal supervisory Board under PROMESA is dealing with PR’s fiscal and economic crisis. Health is one of the priorities as well as payment of PR’s public debt. With the upcoming repeal of Obamacare in the US, Puerto Rico faces a shortfall of almost $1 billion in federal funds for the public healthcare system, putting thousands of Puerto Ricans at risk. The Board is just starting to demand quick action from the new government by establishing a dialogue and trying to expedite under a tight timeline the process of certifying a sustainable fiscal plan that would restore fiscal discipline, provide access to financial markets, pay the public debt, and bring economic growth to PR over the next decade. But, will it succeed? Amidst all these priorities is Puerto Rico’s healthcare plan for the medically indigent. Find out what has happened since started on September 1993 and what lies ahead in the immediate future for PR.

Puerto Rico changed its course in 2016
Change hit Puerto Rico abruptly and hard as its fiscal crisis unfolded and rolled out public debt default with limited or no access to traditional financial markets. Badly needed investment in infrastructure stalled and the economic recession is now in its 11th year. This time the US told the Island there would be no bailout. Instead, Congress approved PROMESA with an oversight fiscal board that has almost omnipotent powers even over elected local politicians. It is not hard to find many in favor of the Board who hope it can trigger badly needed structural reforms in taxes, health, education, labor, pension systems, and government, among others. But, this hard medicine that produced upheaval in the past can also lead to rebellious mood in the year ahead. The dramatic election of Donald Trump promises a rollback of Obamacare and an inward-looking America. This Pulse reviews the forces of change in PR in 2016 that will shape its economic future.

Success will depend on the premises it makes
The government’s latest version of its fiscal and economic growth plan has come under close scrutiny since being submitted to the Financial Oversight & Management Control Board (FOMCB) for PR. Some critics have pointed to its lack of policy specifics while others have scorned the fact that it does not contain a debt sustainability analysis while resting on additional federal funding. The PR fiscal plan (FP) has various technical points and assumptions that have also been singled out. The plan’s viability, regardless of the gaps, will ultimately depend on the validity of its assumptions. Policy makers must find a way to boost PR’s long-term potential output first but the appointed board may want to restructure public debt obligation first. Growing the economy will ensure that the future roadmap rests on credible future income flows. This edition of the Pulse takes a look at the fundamental assumptions behind the fiscal plan.

Election 2016 – Analysis of Economic Platforms
On November 8th, 2016, Puerto Ricans will face a stark choice between six governor candidacies, consisting of 4 political parties and 2 independent candidates. According to recent polls, independent candidates are attracting 22% of voters. Still, Ricardo Rossello from the NPP and David Bernier from the PDP are leading the polls to be the next Governor of PR. However, with the recent approval of a US Congress mandated Fiscal Control Board for PR, most people consider the elected governor and the legislature will have limited powers and areas of influence. Under these circumstances, the next four years will be tough for the new government and the people of PR. Economic issues include recession, outmigration, debt payments, retirement and health time bombs, and a harsh relation with the Fiscal Control Board. Voters in PR will have to analyze carefully the various platforms of these candidates and determine if some of these measures are economically unfeasible, not fiscally prudent, unclear; or depict lack of organization and cohesion, among other flaws. Can you judge who might be the better candidate for PR?

Believers of the credit-union movement talk of a “social mission”: to serve communities. As of March 2016, credit unions in the Island had 976,550 members with $8.7 billion in total assets. Earnings are returned to members in the form of better interest rates and dividends. Traditionally, credit unions have offered higher rates than banks to savers and lower rates to borrowers. During this financial and current economic crisis in PR, most credit unions have been more resilient than banks. They have been able to compete with banks and small loan companies who complain loudly about credit unions’ exemption from local income tax. Though credit unions may pay no taxes, neither have they needed taxpayers’ money for bailouts, until now. Many credit unions, which purchased PR bonds (currently rated as junk) are facing tough challenges with their capital requirements. Its regulator COSSEC has been considering a “bailout” type of proposal for these credit unions. Will it be enough without endangering their regulartor COSSEC? Find out in this Pulse.

How the PR economy could perform with these trends
As PROMESA with its Fiscal Control Board prepares to fix the island’s fiscal and hopefully economic problems, it is wise to assess the effects of aging and migration on the PR economy. Several years ago, PR Pulse addressed the issue of migration and a few months ago, we analyzed the impact of aging and lower population in Puerto Rico. Today, we combine both trends to assess the magnitude of their potential effects on the labor market and the island economy. Europe as well as many US states are experiencing substantial growth in the size of their older population. PR has joined the aging movement. Population aging and current migration have detrimental effects on our economic growth. Much of the older population growth was predetermined by lower fertility rates but now migration plays a key role in this population shift. Find out how these trends strike a further blow to economic growth in PR.

Online Offer11% discount on Hurricane Maria's Impact Study!Expires Dec 20, 2018Christmas special: Buy the research study: How Hurricane Maria Forges PR’s Economic Future before December 20th 2018 and get an 11% discount.The study examines five core areas that are set to determine PR’s outlook and likely performance. Just as important, we can bring value to your decision making process by helping you gain a deeper insight into PR’s emerging risk profile.

Five questions lead the discussion:

How large is the devastation caused by Maria in comparison with other natural disasters?What will it take to rebuild its physical infrastructure and how will government reorganize itself?What are the possible scenarios for payment of PR’s public debt?What is the path forward with macroeconomic scenarios in the short (1 yr.), medium (3 yrs.), and long term (5 yrs.)?Where have the new business opportunities landed? ...

Christmas special: Buy the research study: How Hurricane Maria Forges PR’s Economic Future before December 20th 2018 and get an 11% discount.The study examines five core areas that are set to determine PR’s outlook and likely performance. Just as important, we can bring value to your decision making process by helping you gain a deeper insight into PR’s emerging risk profile.

Five questions lead the discussion:

How large is the devastation caused by Maria in comparison with other natural disasters?What will it take to rebuild its physical infrastructure and how will government reorganize itself?What are the possible scenarios for payment of PR’s public debt?What is the path forward with macroeconomic scenarios in the short (1 yr.), medium (3 yrs.), and long term (5 yrs.)?Where have the new business opportunities landed? ...